The Nationalization of Foreign-Owned Property*
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University of Minnesota Law School Scholarship Repository Minnesota Law Review 1952 The aN tionalization of Foreign-Owned Property Edward D. Re Follow this and additional works at: https://scholarship.law.umn.edu/mlr Part of the Law Commons Recommended Citation Re, Edward D., "The aN tionalization of Foreign-Owned Property" (1952). Minnesota Law Review. 1212. https://scholarship.law.umn.edu/mlr/1212 This Article is brought to you for free and open access by the University of Minnesota Law School. It has been accepted for inclusion in Minnesota Law Review collection by an authorized administrator of the Scholarship Repository. For more information, please contact [email protected]. THE NATIONALIZATION OF FOREIGN-OWNED PROPERTY* EDWAD D. RE** INTRODUCTION A LTHOUGH the practice of governmental seizure of private prop- erty is historically ancient, legal history does not record an era when the myriad juridical problems incident to such a govern- mental act were of greater magnitude or more difficult of solution than those confronting jurists and statesmen today. What was formerly an isolated occurence has now become a matter of common practice followed even by countries that accord the traditional respect to private property. Although no country outside of the Soviet Union has thus far attempted to abolish the institution of private property, the recent nationalization of industry has not been undertaken solely by those countries under the influence of the Soviet philosophy.' In modern times, the Mexican expropriations and the Soviet nationalizations may be regarded as the forerunners of many inci- dents of nationalization of private property. The Iranian national- ization of the property of the Anglo-Iranian Oil Company,2 a cor- poration whose majority stock is owned by the British government, will not be the last governmental nationalization of private property. Furthermore, it would seem that no part of the world is immune from this rapidly growing phenomenon. A daily newspaper that discussed the Anglo-Iranian incident also contained a report from Santiago that certain deputies of the Chilean Parliament intro- *This article is the substance of an address delivered by the author at the International Law round table at the 1951 annual meeting of the Associa- tion of American Law Schools in Denver, Colorado. **Professor of Law, St. John's University School of Law; Chairman, Committee on Comparative Civil Procedure and Practice, International and Comparative Law Section, American Bar Association. 1. Both France and England, for example, have nationalized certain basic industries. See Myers, The Nationalization of Banks in France, 64 Pol. Sci. Q. 189 (1949) ; De Vries and Hoeniger, Post-LiberationNationaliza- tions in France, 50 Col. L. Rev. 629 (1950) ; Lord Nathan of Churt, English Law and the Nationalized Industries, 5 The Record of the Association of the Bar of tie City of New York 219 (1950) ; Schmitthoff, The Nationaliza- tion of Basic Industries in Great Britain, 16 Law and Contemp. Prob. 557 (1951). 2. See Kuhn, Nationalization of Foreign-owned Property in its Impact on InternationalLaw, 45 Am. J. Int'l L. 709 (1951). See also Fenwick, The Order of the International Court of Justice in the Anglo-Iranian Oil Coin- pany Case, 45 Am. J. Int'l L. 723 (1951). MINNESOTA LAW REVIEW [Vol. 36:323 duced a measure calling for the nationalization of Chile's copper- mining industry which is largely owned by interests in the United States. The topic of foreign nationalization measures is of the most vital importance to any individual or corporation either presently possessing or contemplating the investment of capital abroad. The legal effects of such governmental measures have already been ac- corded considerable treatment by international lawyers.3 It is un- fortunate, however, that the problems presented do not always lend themselves to a practical or easily attainable solution. This inexor- able difficulty is partially explained by the fact that the legal solution is made to suffer by reason of ideological conflicts, political discord, economic necessity and other matters of international expediency. These difficulties underscore the warning that the possibility of nationalization must be added to the existing impediments and 4 risks attending the investment of capital in foreign countries. In the compass of a brief paper it is proposed to discuss some legal aspects of nationalization insofar as customary international law and practice may reveal an answer to two fundamental ques- tions: Does a nation have a right to nationalize foreign-owned property? If such a right exists, what are the rights of the former owners ? A. Nationalizationin Time of Peace It must be understood at the outset that what is about to be discussed is the nationalization of private property in time of peace. The power of a State to confiscate the property of the enemy lo- cated within the national domain of the belligerent, as incident to the effort of the belligerent to weaken the enemy both militarily and economically, presents a different question of international law.5 3. Some references can be found in Domke, On the Extraterritorial Effect of Foreign Expropriation Decrees, 4 Western Pol. Q. 12, 16, n. 32 (1951). See also Domke, Book Review, 26 N. Y. U. L. Rev. 732 (1951). 4. For a summarization of the impediments see Committee Report, Committee on Foreign Law and Committee on International Law of the Association of the Bar of the City of New York, 6 The Record 127 et seq. (1951) ; Miller, The ECA Guarantiesand the Protection and Stimulation of Foreign Private Investment, 3 Geo. L. J. 1, 14 (1950) ; Littell, Obstruwlion to Private Investment Abroad, 36 Va. L. Rev. 873 (1950) ; Reeves and Dickens, Private Foreign Investments: A Means of World Economic Development, 64 Pol. Sci. Q. 211, 226 et seq. (19,19). See also Rubin, Nationalization and Pri- vate Foreign Investment: The Role of Government, 2 World Politics 482 (1950). 5. Schneeberger, Property and War, 34 Geo. L. J. 265 (1946). See 3 Hyde, International Law Chiefly as Interpreted and Applied by the United States 1733 et seq. (1947). 1952] FOREIGN- OWNED PROPERTY However, even in this situation, although there is authority tending to uphold the governmental power to confiscate enemy property, 6 it is interesting to note that it is the modern enlightened policy of nations not to confiscate such foreign property, but rather to "pre- serve" it until the end of the war. In the United States, such is the 7 function of the Alien Property Custodian. B. Expropriationvs. Confiscation The term nationalization is comparatively new, and, although it is descriptive of the act of a government taking over either particular industries or the entire economic structure of the nation, it does not indicate whether the taking is with or without com- pensation to the former owners of the nationalized property. If the particular nationalization decree does not provide for compensation, or if the offer of compensation is inadequate or illusory, the nation- alization is in effect a confiscation of the property." However, if there is a granting or an offer of adequate compensation, the nation- alization is in effect an expropriation of the property. In the words of former Secretary of State, Cordell Hull: "The taking of property without compensation is not expropriation. It is confiscation."' It, therefore, becomes apparent that the true nature and legal effect of any nationalization decree cannot be ascertained unless the decree is examined to determine whether provision has been made for the compensation or indemnification of the former owners. EXISTING RULES OF INTERNATIONAL LAW Since the charter of the United Nations is silent on the question of the respect that a member State is to accord foreign-owned prop- erty located within its territorial jurisdiction, a search for any ap- plicable rule of law is unfortunately limited to the existing norms of international law.10 Such an examination, however, will reveal 6. See United States v. Perchenan, 7 Pet. 51 (U.S. 1833) ; Ware v. Hylton, 3 Dall. 199 (U.S. 1796); Brown v. United States, 8 Cranch 110 (U.S. 1814). 7. See quotation of statement by Mr. A. Mitchell Palmer, Alien Property Custodian in 3 Hyde, International Law Chiefly as Interpreted and Applied by the United States 1736 (1947). Speech of President Coolidge: "It has been the policy of America to hold that private property should not be confiscated in time of War. This principle we have scrupulously observed." N. Y. Times, Dec. 8, 1926 p. 14. 8. See Re, Foreign Confiscations in Anglo-American Law 15 et seq. (1951). 9. 19 Dep't of State Press Release 51 (1938). 10. See Articles 2 and 14 of the draft Declaration on Rights and Duties of States. Article 2 states: "Every State has the right to exercise jurisdiction MINNESOTA LAW REVIEW [Vol.[ 36:323 that both the international practice of States and the writings of theorists and publicists furnish some basic answers to the many problems raised by the nationalization of foreign-owned property. A. Power of State to Nationalize Unless a State has divested itself of its power to expropriate property within its own territorial jurisdiction, by treaty or other binding international obligation, such power is generally considered an inherent attribute of sovereignty and has not been seriously questioned. In the absence of an applicable treaty stipulation, an act of the government which expropriates property is not considered an international tort for the commission of which restitution in kind must be made to the owners.- On this question, the opinion of the Permanent Court of International Justice in the Chorzow Factory case1 2 is very significant because the Court distinguished between an expropriation contrary to the provisions of an existing treaty and an expropriation in the absence of such a treaty.